While Wall Street is certainly free to broken record that Michael Lewis' hugely popular story about HFT and market rigging did not impact the natural course of events, the reality is it did: the collapse in Barclays' dark pool LX (shown in the bolded red line on the chart below), in the aftermath of the NY AG case against the British bank, has been documented in the past, and is just one example. An even more vivid case study comes from the surge in popularity of upstart dark pool IEX (green dotted line below), the protagonist of Lewis' Flash Boys book, and which out of nowhere, has just tied with Lavaflow's dark pool for fourth spot in ATS trading with just over 200 million shares in the week ended October 27.
Select ATS venues as ranked by total shares traded:
Above IEX is only the traditional (Europe-based) trifecta of dark pool titans: Deutsche Bank, UBS and in top spot, Credit Suisse. How long until IEX' current rate of ascent cements it as the most desired venue to execute large order blocks without being frontrun by millions of frontrunning HFT algos?
What is clear is that the revulstion against HFT is only growing: overnight we learned that the world's largest sovereign wealth fund, Norway's, with $860 billion AUM, "has worked out how to dodge traders in the U.S. trying to profit on his orders by leaving no pattern for them to track."
Investors who want to pre-empt trades by the world’s biggest sovereign-wealth fund and act on that information to make a profit -- a practice known as front running -- won’t have much success, he said.
Norway's solution: get away from the scam that is VWAP and do everything in a dark pool, that of IEX itself: “We’ve done a lot to try and avoid leaving those patterns,” Schanke said in a Nov. 14 interview at the Oslo headquarters of the fund. “We’re trading less using algorithmic trading now than we did some years ago and are doing much more trading in large block sizes to avoid pattern-reading.”
Sure enough, more and more intelligent institutional investors are sick and tired of HFT-induced slippage, of the recursive collapse in liquidity in which markets dominated by HFTs also stand to see all the liquidity evaporate in a millisecond once the "machines are turned off" for whatever reason, and are pulling away from venues they know are populated by frontrunning preadtors and parasites:
The market as [Schanke] sees it “isn’t good enough for raising investor confidence,” which has been an issue in the U.S. since the financial crisis and was deepened by the flash crash of May 2010. While the solution isn’t necessarily public ownership of exchanges, he said a closer look at the existing regulation could help make markets less complicated.
“Some of the things that an exchange does are in a way a utility function,” Schanke said.
The fund in June said it supported Brad Katsuyama’s IEX Group Inc. exchange because it allows “all players to participate on the same terms.”
Perhaps the only question is why it took so long. Another question: when the Fed's natural and symbiotic partner in the relentless stock market levitation of the past 6 years, the Hi-Freaks, finally go away when all the institutional money follows in Norway's footsteps, just how will the Fed be able to dictate the direction of the market when catching momentum inversion points courtesy of the likes of Citadel, which has long since done its patriotic duty and stepped up to buy ES at the just beyond arm's length bidding of Liberty 33, and halt market crashes.
Because when everyone is on an HFT-free dark pools, momentum ignition strategies are finally done.
Now if only everyone else could hurry up and do what the Norwegians did, perhaps the market will finally rid itself of the HFT terror, since by now it is clear to even 5 year olds that the SEC, bought and paid for by the same HFT "lobby", will never move a finger, at least not until the market crashes out of its own weight and the need to crucify a scapegoat means HFT will be finally sacrificed at the altar of populist anger.